The earliest form of Islamic banking in Malaysia dates back to 1963, where Muslims preparing for their Hajj (pilgrimage to Mecca) received assistance in savings, without interest (riba). Realising the consumer enthusiasm and economic growth of GCC region, Malaysia grabbed this opportunity to become a pioneer in Islamic banking, with Muslims and impressively, non-Muslims becoming major stakeholders.
Market Size
According to Moody's, Islamic finance in Malaysia will account for 20 per cent of its banking assets by 2010, from the current level of 14 per cent.
Sukuk is the fastest growth part of the Malaysian Islamic banking story, accounting for 95 per cent of Asian sukuk issues in 2007. Moody's projection is for the sukuk market to continue to grow at a rate of 30 to 35 per cent a year.
Asia's two largest Muslim countries, Indonesia and Pakistan, have shown strong interest in Islamic banking, but have limited experience and resources. These countries will be looking at Malaysia for the helping hand.
Strong competition for Malaysia is likely to come from Singapore and Hong Kong, which are looking to establish themselves in Islamic finance.
Key Developments
Aug. 2008: Royal Bank of Scotland aims to enter into the Malaysian Islamic banking industry, through its subsidiary, ABN Amro.
Jul. 2008: Abu Dhabi University signs a memorandum of understanding with International Centre for Education in Islamic Finance of Malaysia (INCIEF), with the objective of providing training and development for the industry.
Jun. 2008: Bursa Malaysia, the stock exchange regulator, plans to launch two Shari'a compliant products. The includes commodity murabaha, which takes advantage of Malaysia strong position in crude palm oil, and securities borrowing and lending product.
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